Markets still down despite latest European summit; Moody's add more banks to downgrade watch

Tom Tong13/Dec/2011Currency Updates

GBP

Nick Clegg continued his “bad for Britain” campaign yesterday after Cameron’s veto of EU treaty changes last week. The fact remains, nothing that happened last Friday in Brussels will change the free movement of goods, labor, services and capital in Britain. Few other countries or industries have benefited as much as Britain’s financial services sector from these four freedoms. The UK’s continued membership of the single market ensures continued benefit from that. The proposed treaty inflicted heavy taxation on banks, 75% of which lie within the City of London, so Britain would have been taxed heavily to support the failing Euro zone countries. Fears about the decision come more in the long term, when Britain could see itself isolated from decisions not yet made. Elsewhere the FSA is looking increasingly red faced as it admits it was part of the ‘market mass delusion’ that led to the current financial meltdown.

A survey conducted of 2,100 employers in the UK showed that 4 out of 5 had no plans to hire in the next three months, the news comes ahead of tomorrows unemployment figures. At a regional level expectations have fallen from +1% to 0% indicating stagnation at the least.

EUR

Doubts have resurfaced over Europe’s ability to solve its debt crisis and rescue the imperilled Euro, as investors worry that plans for a new fiscal pact would bring little immediate relief.

The rift between Britain and the 17 nations in the eurozone fed uncertainty about the deal’s implementation, ratings agencies Moody’s and Fitch warned the plan would make little difference. The summit produced few new measures, and Europe remains in a critical and volatile stage, Moody’s said in a published report. It also noted that the pact does not address Europe’s immediate problem: “the crushing debt loads of nations such as Italy and Spain and rising borrowing cost”, and warned that the AAA rating of some of the key players are within the Euro zone are in imminent danger of been downgraded. This was reflected in this mornings move by Moody’s to put 8 Spanish banks on watch for downgrade.

The Euro hit a 10-week low against the Dollar falling by 1.5 per cent to $1.3180 as market confidence in the plan and Europe’s ability to end the crisis ebbed. European stocks closed sharply lower. Yields on Italian bonds rose to 6.76 per cent, closing in on the 7 per cent level that forced Greece, Ireland, and Portugal to take bailouts. The Euro also fell to a 9 month low against the sterling.

USD

The Dollar gained against major currency rivals in the New York market yesterday and was particularly strengthened on news of a possible mass downgrade of European sovereign credit ratings potentially as early as within the week. In the early trading today, India’s weak domestic equity market increased demand for the American currency whilst the USD-YEN was held in a very tight trading range. Data released today on US retail sales is expected to be 0.6% in comparison to the previous of 0.5% which adds to signs that the worlds largest economy remains resilient despite previous negative predictions a few months ago. U.S. retail sales are released later in today’s global trading day. The Fed’s interest rate committee is due to announce an interest rate decision.

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Written by Tom Tong

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